Clearing System That Determines Settlement Prices of Derivatives in Financial Portfolios

Abstract

Methods, systems and apparatuses are described for credit default swap (CDS) settlement pricing. The method includes receiving at least quoted prices and/or executed prices, and using them to calculate a settlement price of CDSs in a portfolio. The calculation of the settlement price may also consider other information, such as recovery rate, hazard rate function, etc. The invention also may include an electronic trading platform that is fully integrated with a central counterparty clearing facility for CDSs.

1 . A method, comprising:
 receiving, at a settlement pricing module, data corresponding to prices of credit derivatives, wherein the received data comprises quoted price data and executed price data, wherein the executed price data is sent from at least a market data module in an electronic exchange system;   calculating recovery rates of the credit derivatives using at least the received data;   calculating price data for a tenor of the credit derivatives using at least the received data, where the price data comprises par spread values;   determining, at the settlement pricing module, using at least the calculated recovery rates, a hazard rate function configured for use in calculating price data for a plurality of tenors of the credit derivatives; and   sending, from the settlement pricing module, the price data for the plurality of tenors of the credit derivatives.   
     
     
         2 . The method of  claim 1 , further comprising:
 identifying, at the settlement pricing module, a most liquid tenor of the plurality of tenors of the credit derivative using weighting factors.   
     
     
         3 . The method of  claim 1 , where the credit derivatives are all associated with a common index. 
     
     
         4 . The method of  claim 1 , wherein the data corresponding to prices of credit derivatives further comprises quote spread values for the credit derivatives, and the method further comprising:
 converting the quote spread values to par spread values for the credit derivatives.   
     
     
         5 . The method of  claim 1 , wherein the data corresponding to prices of credit derivatives further comprises upfront price values for the credit derivatives, and the method further comprising:
 converting the upfront price values to par spread values for the credit derivatives.   
     
     
         6 . The method of  claim 1 , wherein the data corresponding to prices of credit derivatives further comprises percentage of par values for the credit derivatives, and the method further comprising:
 converting the percentage of par values to par spread values for the credit derivatives.   
     
     
         7 . The method of  claim 1 , wherein the recovery rate for the credit derivatives is calculated using information about market events. 
     
     
         8 . The method of  claim 1 , wherein the calculating of the recovery rates includes adjusting the calculated recovery rate in accordance with the market news events and corporate actions. 
     
     
         9 . The method of  claim 1 , further comprising:
 validating, at the settlement pricing module, the received data.   
     
     
         10 . The method of  claim 9 , wherein the validating includes testing the received data against historical financial data. 
     
     
         11 . The method of  claim 1 , further comprising:
 discarding at least some of the received data for failure to meet a minimum confidence level threshold.   
     
     
         12 . A computer-readable medium containing computer-executable instructions for performing, at a settlement pricing module, a method comprising:
 receiving data corresponding to prices of credit derivatives, wherein the received data comprises quoted price data and executed price data, wherein the executed price data is sent from at least a market data module in an electronic exchange system;   calculating recovery rates of the credit derivatives using at least the received data;   calculating price data for a tenor of the credit derivatives using at least the received data, where the price data comprises par spread values;   determining a hazard rate function configured for use in calculating price data for a plurality of tenors of the credit derivatives, wherein the determining a hazard rate function uses at least the calculated recovery rates; and   sending the price data for the plurality of tenors of the credit derivatives.   
     
     
         13 . The computer-readable medium of  claim 12 , the method further comprising:
 identifying, at the settlement pricing module, a most liquid tenor of the plurality of tenors of the credit derivative using weighting factors.   
     
     
         14 . The computer-readable medium of  claim 12 , wherein the data corresponding to prices of credit derivatives further comprises quote spread values for the credit derivatives, and the method further comprising:
 converting the quote spread values to par spread values for the credit derivatives.   
     
     
         15 . The computer-readable medium of  claim 12 , wherein the recovery rate for the credit derivatives is calculated using information about market events, the calculating of the recovery rates includes adjusting the calculated recovery rate in accordance with the market news events and corporate actions. 
     
     
         16 . The computer-readable medium of  claim 12 , wherein the data corresponding to prices of credit derivatives further comprises quote spread values for the credit derivatives, and the method further comprising:
 converting the quote spread values to par spread values for the credit derivatives.   
     
     
         17 . The computer-readable medium of  claim 12 , wherein the data corresponding to prices of credit derivatives further comprises upfront price values for the credit derivatives, and the method further comprising:
 converting the upfront price values to par spread values for the credit derivatives.   
     
     
         18 . An apparatus comprising:
 a computer memory, where the memory stores at least quoted price data and executed price data; and   a processor coupled to the memory, where the processor is configured to execute:
 a settlement pricing module that uses at least the quoted price data and the executed price data to determine price data for a plurality of tenors of a credit derivative. 
   
     
     
         19 . The apparatus of  claim 18 , wherein the processor is further configured for:
 calculating recovery rates of the credit derivative using at least the quoted price data and the executed price data; and   calculating price data for a tenor of the credit derivatives using at least the received data, where the price data comprises par spread values.   
     
     
         20 . The apparatus of  claim 18 , wherein the processor is further configured for:
 validating the quoted price data and the executed price data, wherein the validating includes testing the received data against historical financial data.